What is a credit file default?

A default is a record on your credit file stipulating that you have an overdue account such as a loan, credit card, utility bill or phone contract.

It’s classed as being overdue if the payment is 60 days late or if the lender has been unable to contact you.

It’s your responsibility to make sure that all of your creditors have up to date contact information so that they can contact you if you aren’t making your repayments.

In reality, many lenders don’t manage their customer databases well so some defaults are really the lender’s fault, not yours.

Defaults are lodged on your credit file with Equifax and this information is accessed by lenders when you apply for a loan.

A default will remain on your Equifax credit file for 5 years or 7 years if the reason it was lodged was because the lender couldn’t contact you.

Paying the default doesn’t remove it from your credit file.

However, it does change the status to ‘paid’ which is seen more favourably by lenders.

How do lenders view defaults?

The banks find that borrowers often say to them that they didn’t know they had a default.

Lenders hear a lot of stories and will always assume that you did know about the default.

They simply don’t know who to believe and who not to believe!

We always recommend that you apply with lenders that can accept defaults rather than wasting your time applying with the major banks that will decline your application even if you have only had minor credit issues.

Most mainstream lenders won’t lend to people who have an impaired credit file, irrespective of the reasons.

The banks have looked at the repayment history of customers with a default they’ve approved and found that there’s a significantly increased chance that these customers will miss their repayments.

They can’t tell the good borrowers from the bad so they decline any application from someone who has defaults!

What about late repayments?

In the past, lenders only knew if you had paid or unpaid defaults listed on your credit file.

Below average: Paid default less than $1,000 paid over 6 months ago. Some prime lenders and major banks can lend you up to 80% on a case by case basis. Over 80% up to 90% or even 95% may be available in some cases depending on the situation.

Bad credit: More than $1,000 in defaults, all paid. You’d likely have to apply with a specialist lender. If you have a very good story backed up with evidence then you may be able to borrow 80% of the property value with one of our banks.

Serious credit impairment: More than $5,000 in defaults, some unpaid. You must use a private, specialist or non-conforming lender.

How are different default types viewed?

Settled defaults

A default is listed as ‘settled’ if you’ve come to an arrangement with the lender to pay some of the amount owing in return for the lender not pursuing the remaining debt.

This is seen more favourably than an unpaid default, although it isn’t as glowing as a default that has been paid in full.

Current defaults

A default is listed as ‘current’ if you’ve paid the overdue amount and the account is still open.

For example, if you had a default lodged on your file due to a credit card, pay the amount owing and then continue to use the card, it’s listed as ‘current’.

These defaults should be viewed the same way as a paid default.

However, inexperienced credit managers think that ‘current’ means ‘unpaid’ and will often decline your loan!

Clearout defaults

A default is listed as ‘clearout’ if the lender has tried to contact you several times and has been unsuccessful.

Clearouts will remain on your credit file for 7 years instead of 5 years like other defaults.

In many cases, the reason the lender cannot find you is because you have been overseas or have moved address and haven’t informed the lender.

Regardless of the cause, this is seen as the borrower ignoring their responsibilities.

Lenders are extremely wary when considering a loan for someone with a ‘clearout’ default.

Please discuss your situation with us in detail if you’d like to know if you’re eligible for a loan.

Apply for a mortgage

Our mortgage brokers are experts in lending to people with impaired credit.

Please call us on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will let you know if you qualify for a home loan.

One of my friend lives in NT. She wants to buy a house as she has a consistent income now, and she wants to move out of the place that she is currently renting. Honestly, she was never wise while using credit cards. She shopped unnecessarily, and she did not paid what she owed in time. She had too many credit cards and she either did not have the money to repay them or completely forgot that she had to pay at times. Could you tell me if she falls under bad credit category?

If she didn’t make her repayments on time and usually within 3 months from when its due, it might be listed on her credit file. I recommend her to give a call to Veda Advantage and ask for a copy of her credit file.

However, there still are lenders who would consider late repayments and defaults and lend up to 95% depending on the size of the default.

Dominic

I had a default of $4,200 lodged in my credit file and it’s now fully paid off. I would like to get a home loan but I’m worried this will be a major issue. Can I still qualify for anything?

Paid defaults of more than $1,000 means that you’ll likely have to apply with a specialist lender. If you have a very good story backed up with evidence then you may be able to borrow 80% of the property value with one of our banks.

Dominic

I will send in my details to your email and hopefully we can work it out with a major lender. Thank you.

schardt

I only had a single default of under $600 and it’s been paid already. Can I get a home loan despite this and also the fact that I may not be able provide full financials?

Yes, you can get a low doc loan, however, the qualifying criteria can be a little complicated as the specialist lenders have very different lending guidelines for low doc loans. Please call us on 1300 889 743 to discuss this with one of our low doc specialists.

Shin

Do you have real bad credit specialists? Where can I check out their info?

We do have mortgage brokers who specialise in dealing with clients that have a bad credit history. We specialise in dealing with clients that don’t qualify if they go directly to the bank so if you’d like to know about our group of experts, you can check out the pages on the ‘Our Team’ section on our website:https://www.homeloanexperts.com.au/our-team/

DD

I’m looking for preapproval for a 80% LVR purchase. I have $75k in savings with ING and the only default I have lodged in my credit file is a $250 default with AGL that I paid off last year.

Most lenders should be able to help you with this. However, if you’d like some help in getting the most competitive deals and offers then please contact one of our default home loan specialists by calling 1300 889 743.

Vishnu Merhan

I have an unpaid credit default of $9,000 along with a court judgement against it. Both appear on my credit file with deletion dates of mid-2018.

Question 1: will a default be deleted from my file at the 5-year deletion date even if the outstanding amount remains unpaid?

Question 2; is there any significance to there being an original and a current listing for the default?

Yes your default should be removed next year even if it is not paid. However in some circumstances we’ve seen credit providers relist the default for another 5 years. We’re not sure if they’re allowed to do that or not but they seem to do it.

Yes the listing being current or paid is better than it being unpaid. That being said most banks will not approve your loan regardless because of the size of the default and that there is a judgement as well. It will improve the rate that you would get from a specialist lender though.

I’d prefer not to mention which companies as I don’t want to get legal threats mailed to us. However it is rare that companies do this.

KrD

I’m a doctor with a paid default recorded on my credit file. It won’t be out from my file until a few years and I can’t wait until then to get a home loan. I have $30k savings and I own an investment property in NSW with my wife. But my wife also has ATO debt. Will we be able to secure a home loan despite our situation?

Hey KrD
A few lenders may be able to accept this but you may have to leave your wife out of the loan. It’s likely that you won’t be able to qualify for a high LVR home loan so you’ll need to have a sufficient deposit. However, there’s also the option of using equity on your existing investment property so this shouldn’t be a big problem. Please discuss your situation and loan needs in detail with one of our mortgage specialists by calling 1300 889 743.

PTO

I have $8000 worth of settled defaults that I settled 12 months ago and by the time I’m looking to purchase my land will have about $50k-$60k in savings will I still be able to to get a home loan through a specialist lender?

Hi PTO,
Yes it’s likely we can assist you with this. We have a couple of specialist lenders that can accept vacant land and construction. Having the defaults over 12 months old also assists.
When you’re ready just enquire using this link https://www.homeloanexperts.com.au/free-quote/ and you’ll be put through to a specialist bad credit mortgage broker.

PTO

Is there a time frame that you have to build when getting a vacant land loan? Would just prefer to pay off the land for a year or 2 as much as possible so we can borrow less when it comes to the building part!

They say you’re supposed to build within a year or two years but I’ve never seen them enforce this. So your plan should be fine.

Jacqui Jones

I have no defaults but have been pretty slack with paying bills on time (a number of late payments none in the past 30 days). My parents are going to go guarantor for the 20% deposit. I earn $130k a year and plan on consolidating my debt into my loan therefore it would be the only payment I would have to make. What will my chances be with getting a loan with a big bank?

Hi Jacqui,
We’d need to look at your situation in full to be sure as this is complex. We can help with debt consolidation with a guarantor loan and we can help where bills are paid late but the combination of the two is something unusual we’d need to assess.
The major banks don’t do debt consolidation with guarantor loans so you won’t qualify with them. The good news is that some 2nd tier banks do accept this type of loan and they are cheaper than the banks anyway.
I hope that helps.

Joel Yao

Hi, i am trying to get home loan refinance to buy franchise and be self employed. I am currently employed full time and my partner as well. Problem is, we got default rating from council but paying the arrears weekly as agreement. We want to borrow more funds for franchise and pay off our car loan. Is this possible?

Hi Joel,
This may or may not be possible just depending on the circumstances. I’ll email you and cc one of our specialist mortgage brokers who will assist you further.

Lovely

I’ve had late payments for a couple of months in my mortgage but haven’t missed any of them. So I did catch up and eventually paid these late repayments. I was planning to refinance and get some cash out, is this possible?

Hi Lovely, a couple of late payments is permitted with some lenders but several late payments will be viewed as a potential issue and assessed in a similar way to that of having missed a few payments. Please feel free to contact us on 1300 889 743 if you’d like some help to finding a lender that can be more flexible with your situation.

Cameron Redmond

Hello, I have recently found out that I have 2 defaults, one for 243 the other 866 from pay day lenders two years ago when I was a chronic gambler and had a drug addiction. I have paid these defaults and have requested they be marked as paid. I have been told by homebuyers that I can’t be serviced for 2 years. I can’t wait 2 years as my budget was dead on this time, in 2 years houses will increase and it will forever be out of my reach. What can I do? I’ve been told to go to the ombudsmen and request they get removed or contact the pay day lenders to remove them. I have been clean 2 years now and this is haunting me . Any advice would be great I’m asking around everywhere

Ashika

I’m thinking about buying a house. I have a low credit score (234) as I’ve made heaps of enquiries and I have a couple defaults on two credit cards that I’m paying currently. Can you guys tell me whether getting a home loan is possible in my current situation?

Hi Ashika,
It looks like this is not the right time to apply for a mortgage. You may want to hold on for a while and try to pay off your defaults (it’s great that you’re doing this and moving in the right direction) and not apply for anything with any financial institution to keep your level of enquiries stable. More than two enquiries over a period of 6 months is not a good sign to most lenders. Also, if you have too many credit cards then it’s good to close some to improve your borrowing power, which will help you to improve your credit score. There are some specialist lenders who may be able to help you if the defaults are of small amount, and it’ll be really easy to apply for a home loan once you pay off your defaults.

JS

Hi,

I have 2 defaults adding up to $1800. One was paid and one was settled but both over a year ago. I currently do not have any debt and in the middle of saving for a deposit and have not made any credit applications for 3 years. So 2 questions:
– Would I qualify for a home loan
– What would be the the deposit I would need my situation if I was to take out a home loan for $450 000.00

Hi JS,
Which state are you planning to buy in? And are you a first home buyer?
You can qualify for a loan for 95% of the property value however you need to have a strong income to qualify. They like to see that you can easily afford the debt rather than you borrowing the maximum that you can afford.

Wystan

Hi HLE,

I am saving up for a deposit for a home loan- looking to buy end of 2019. I just ordered my credit file and notice that I have a credit default listed from November 2016 of $296, although it was from a 2011 electricity bill that I missed (must’ve just moved out without providing an address, was 18 at the time). I will of course pay it off asap. I’m wondering if I have a chance at all with a prime lender (hoping particularly for CUA or ING)?

Other info:
– My partner and I are looking at a joint loan, she has very good credit history. Apart from the default, I have not other debts or enquiries. My partner only has a post-paid phone bill account.
– Looking at an established house (in Townsville) valued between 450 and 550k
– First home buyers in Qld
– Conservatively estimated deposit of about 60k all genuine savings (realistically can be $80k, max about $100k). Deposit has been saved through FHSSS and in a high interest savings account.
– Both employed in government in permanent full-time positions with combined income of $150k p.a for 2 and 3 years respectively. Prior to this we were both uni students.
– No debts or kids or major assets
– Renting in the same premises for past 3 years with outstanding rental repayment history. Prior to this we were renting a private room at the same address for about 5 years.

If I can’t get a loan with a prime lender, should we just push back our goal to buy until we have more deposit or wait completely until the default is off my account? I’d like my own home sooner but prefer paying rent to excessive interest rates!

Hi Wystan,
Your default is of non-financial nature and is of a small amount, so there are high chances that prime lenders will accept your application (once the default has been paid) given your sound employment, savings and financial condition.

Moreover, ING doesn’t accept people with a bad credit history unfortunately, but CUA might accept you. Don’t worry; we have a panel of almost 40 lenders, so we can help you find a prime lender despite your credit history.

Hi James,
Major banks may have an issue with defaults at 5% of deposit, or any loans higher than 90% of the property value. Now, with 20% deposit you have a higher chance, but still, the choice of the bank may matter. We know policies of almost every 40 banks on our panel, call us on 1300 889 743 or enquire online https://www.homeloanexperts.com.au/free-quote/ and speak with an experienced mortgage broker.

john

Hi,I am looking to buy a property. was defaulted 10 years ago. Defaults are removed 3 years ago from my credit file and 2 years ago I got a personal loan, credit card and car finance again. I have recently cleared off current loan, credit card and car finance. Basically no debts now. Can i get a home loan now. do I need to disclose 10 years old defaults as well.

Hi John,
Usually, defaults stay on your credit file for 5 years and even if you disclose, it won’t have any bearing against your home loan. It’s good to disclose but it isn’t mandatory to do so. Call us on 1300 889 743 or complete our free assessment form https://www.homeloanexperts.com.au/free-quote/ and one of our specialist mortgage brokers will call you to discuss your options.

john

Thanks for your prompt reply. Currently my credit history is clean without any defaults and my credit score is Excellent.

Hi, my partner and I are planning to buy a house soon hopefully with my parents going guarantor. We have started to save and have a modest amount saved so far. The issue is my partner has 2 defaults on her file. She has arrangements in place and is paying them off. But would it be better to just use what we have saved and settle them as we have enough to pay them out and they’ll probably settle for less.

From reading your article it seems she has 2 $1k+ defaults which isn’t great however if we settle and pay them, does having a guarantor change anything?

Hi Evan,
Although it’s not a big default, lenders will see it as a negative aspect on your partner’s credit file. Firstly, you have to clear those defaults and only then you can apply for a home loan. You can avoid the hassle if you apply on your own or if you both have to apply together, then you may have to provide an explanation to the bank that it was a one-off event and won’t be repeated again in the future. Even having a guarantor won’t necessarily change anything as this is more related with an applicant’s credit record. Call us on 1300 889 743 and speak with a bad credit specialist about your situation.

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